3.26.10 Appraisal Filing Exhibit B Part 3 (More Images)

8/8/2019 3.26.10 Appraisal Filing Exhibit B Part 3 (More Images)

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P R O P E R T Y A N D AR E A D E S C R I P T I O N 38

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SUBJECT PHOTOGRAPHS

SUBJECT PROPERTY: LOOKING NORTH TOWARD MODELS

SUBJECT PROPERTY: LOOKING SOUTH TOWARD MODELS

Case 8:09-bk-21712-TA Doc 217-4 Filed 03/26/10 Entered 03/26/10 18:41:32 DescExhibit B - Part 3 Page 1 of 20




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SUBJECT PROPERTY: STREET SCENE LOOKING EAST ON WARNER AVE The subject property is at the right.

SUBJECT PROPERTY: LOOKING SOUTHEAST ON BRIGHTWATER DR OFF WARNER AVE





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SUBJECT PROPERTY: LOOKING EAST TOWARD THE TRAILS MODELS

SUBJECT PROPERTY: LOOKING SOUTHWEST TOWARD THE SANDS MODELS





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SUBJECT PROPERTY: LOOKING WEST TOWARD THE CLIFFS MODELS

SUBJECT PROPERTY: LOOKING SOUTHWEST TOWARD THE BREAKERS MODELS





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SUBJECT PROPERTY: THE TRAILS PRODUCTION UNITS

SUBJECT PROPERTY: THE SANDS PRODUCTION UNITS





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SUBJECT PROPERTY: THE CLIFFS PRODUCTION UNITS

SUBJECT PROPERTY: THE BREAKERS PRODUCTION UNITS





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SUBJECT PROPERTY: PROJECT ENTRANCE ON BOLSA CHICA ST

SUBJECT PROPERTY: COMMON AREA PARK ON BRIGHTWATER DR





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SUBJECT PROPERTY: THE TRAILS KITCHEN

SUBJECT PROPERTY: THE TRAILS LOFT-LOOKOUT





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SUBJECT PROPERTY: THE SANDS KITCHEN

SUBJECT PROPERTY: THE SANDS LIVING ROOM





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SUBJECT PROPERTY: THE CLIFFS OUTDOOR LIVING ROOM

SUBJECT PROPERTY: THE CLIFFS CASITA





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SUBJECT PROPERTY: THE BREAKERS KITCHEN (PREPARATION KITCHEN, RIGHT)

SUBJECT PROPERTY: THE BREAKERS LIMESTONE STAIRCASE





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SUBJECT PROPERTY: THE BREAKERS BATHROOM

SUBJECT PROPERTY: THE BREAKERS MEDIA ROOM





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SUBJECT PROPERTY: THE BREAKERS FIRST-FLOOR OCEAN VIEW

SUBJECT PROPERTY: THE BREAKERS SECOND-FLOOR OCEAN VIEW





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SUBJECT PROPERTY: LOOKING EAST ON THE BOLSA CHICA NATURE TRAIL Subject units are at the left.

SUBJECT PROPERTY: LOOKING WEST ON THE NATURE TRAIL

Breakers models are at the right.





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SUBJECT PROPERTY: LOOKING NORTH ACROSS PACIFIC COAST HWY FROM BOLSA CHICA STATE BEACH

The subject property is on the ridge on the horizon.

SUBJECT PROPERTY: LOOKING WEST ON LOS PATOS AVE The subject property is at the left.




H I G H E S T A N D B E S T U S E 53

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H I G H E S T A N D B E S T U S E

The term highest and best use is defined as follows:

The reasonably probable and legal use of vacant land or animproved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.The four criteria the highest and best use must meet are legalpermissibility, physical possibility, financial feasibility, andmaximum profitability.1

The highest and best use analysis applies the four tests—legally permissible,

physically possible, financially feasible, and most profitable—sequentially toarrive at the highest and best use.

Highest and Best Use of the Property “As Is”

Legally Permissible Use

The legally permissible use refers to governmental or private use restrictions

for the site. The zoning and coastal commission entitlements limit the use to

single-family detached residences. Considering the long and arduousentitlement process for the subject property, it appears extremely unlikely that

any potential bulk buyer would consider re-planning the project.

Physically Possible Use

Factors that affect the physically possible use of the site include topography,

size, shape, access, and exposure. The topography and other physical

characteristics do not impose any limitations on the use of the subject site in

addition to the legally permissible uses. The elevated mesa location provides

the opportunity for additional revenue from view lot premiums along the westand south periphery of the site.

1 The Dictionary of Real Estate Appraisal , 171.




D E S C R I P T I O N O F T H E AP P R A I S A L P R O C E S S 54

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Financial ly Feasible Use and Most Prof i table Use

Financial feasibility refers to value in excess of cost. Uses that pass the legal and

physical tests must also be profitable.

Residential values have fallen dramatically in the recession. However theappraisal analysis demonstrates that the property retains considerable value

under any reasonable forecast of future revenues.

Summary - Highest and Best Use as i f Vacant

The highest and best use of the site is continued development of the single-

family residential subdivision as already planned and entitled.

D E S C R I P T I O N O F T H E A P P R A I S A L P R O C E S S

The appraisal process includes three recognized approaches for estimating the

value of income-producing property: the cost approach, the income

capitalization approach, and the sales comparison approach, defined as

follows:

Cost Approach

A set of procedures through which a value indication is derived for the feesimple interest in a property by estimating the current cost to construct areproduction of, or replacement for, the existing structure; by deductingaccrued depreciation from the reproduction or replacement costs; and by adding the estimated land value plus an entrepreneurial profit. Adjustmentsmay then be made to the indicated fee simple value of the subject property toreflect the value of the property interest being appraised.1

1 The Dictionary of Real Estate Appraisal , 81.




D E S C R I P T I O N O F T H E AP P R A I S A L P R O C E S S 55

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Income Capital ization Approach (Development Method)

An analysis that simulates a residential developer’s procedure for arriving at aprice to be paid by discounting expected revenues and costs over a projected

construction and marketing period.1

Sales Comparison Approach

A set of procedures in which a value indication is derived by comparing theproperty being appraised to similar properties that have been sold recently,applying appropriate units of comparison, and making adjustment to the saleprices of the comparables based on the elements of comparison.2

Reconciliation and Final Value Estimate

Each approach addresses the appraisal problem from a different perspective,and each approach produces a separate value indication. A final value estimate

results from a reconciliation of the value indications from each approach. In

the reconciliation, the appraiser: (1) weighs the relative reliability of each

approach in view of the quality and quantity of available data, and (2)

considers the relative applicability of each approach in view of the specific

appraisal problem. The appraiser bases the final value estimate on the most

reliable and applicable value indication.

1 Paraphrased from Appraising Residential Properties (Chicago: The Appraisal Institute),

294, and Subdivision Analysis (Chicago: The Appraisal Institute), 52.2 The Dictionary of Real Estate Appraisal , 318.




V A L U A T I O N – B U L K V A L U E “A S I S ” 56

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V A L U A T I O N – B U L K V A L U E “ A S I S ”

The concept of bulk value is based on federal regulations which indicate that

“The sum of retail sales for a proposed development is not the market value of thedevelopment. For proposed developments that involve the sale of individual houses,units, or lots, the appraiser must analyze and report appropriate reductions and discounts

for holding costs, marketing costs, and entrepreneurial profit.”1

The bulk value is the value to a single buyer intending to resell the individual

units, taking into consideration appropriate reductions and discounts from

retail value. This appraisal values the subject property using the discounted

cash flow method (in the case of residential subdivisions, sometimes called the

development method) under the income capitalization approach.The income capitalization approach involves the application of methods

that convert (capitalize ) income into a value indication. Two methods are

commonly used: direct capitalization and yield capitalization (discounted cash

flow). The discounted cash flow method produces a value indication by

calculating the present value, using a market-derived discount rate, of forecast

periodic sales proceeds less costs during a holding period.

Appendix E contains the discounted cash flow spreadsheet showing the

forecast of revenue and expenses through sell-out of the entire subject project.

In general the model assumes that the worst of the recession is over and thatconditions will improve over time.

Forecast Revenue

Revenue for the discounted cash flow analysis in generated primarily by the

periodic sale of the individual homes to retail buyers plus a smaller increment

from sale of the models.

1 12 CFR 564.4(a)(9).




V A L U A T I O N – B U L K V A L U E “A S I S ” 57

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Retail Value of Completed Houses

The retail value of the completed houses is estimated using the sales

comparison approach. The sales comparison approach produces a valueindication by comparing and contrasting the subject property with sales of

similar properties.

Comparable Improved Data

The subject property is a uniquely large subdivision currently selling upscale

and luxury single-family homes in coastal Orange County. There are relatively

few upscale subdivisions currently selling in coastal areas of either Orange or

Los Angeles County. To supplement the subdivision data, I have searched the

market for spot sales of new upscale single-family homes as indicators of

current prices. The following data appear to be the best indicators of value for

the subject individual homes.


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3.26.10 Appraisal Filing Exhibit B Part 3 (More Images)